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The pitch
Brent Beshore was buying small businesses in Columbia, Missouri, when he pitched Notre Dame's endowment on a permanent capital fund. He knew so little about institutional investing that two days before the visit he emailed to ask whether he could wear blue jeans, and the answer was an emphatic no. He had also booked the entire day, not knowing the norm was an hour.
The meeting
He mapped out the whole model on a whiteboard, but the endowment's decision-makers did not think highly of him. The meeting lasted about twenty minutes. One of them asked whether the opposite of private equity was really going to give a better return than private equity. His answer was yes, sir, and he was laughed out of the room.
Why no was right
He had walked in expecting a check. If Notre Dame had offered twenty or thirty million dollars for a permanent capital vehicle, he would have taken it in a heartbeat and signed his life away. That would have left him beholden to one institution, cut off from the people he ended up working with, with a stunted career and a need for far more capital than he could have raised.
Why do endowments favor private investments?
Yale's chief investment officer David Swensen began shifting Yale's portfolio away from public stocks and bonds toward private equity, venture capital, and real assets in the mid-1980s. Private investments can be locked up for a decade or more, and an endowment, which exists to last indefinitely, can accept that. Swensen laid out the approach in his 2000 book Pioneering Portfolio Management. Many other university endowments later adopted similar portfolios.
How does one big investor sway a fund?
An investor that supplies a large share of a fund's capital is often called an anchor investor. It can negotiate terms such as fees, governance rights, and reporting, and other investors then inherit those terms. A founder who depends on a single anchor may find decisions shaped by that investor's preferences. Investors in a private fund are called limited partners, while the manager is the general partner.
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